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PPP Funds for Infrastructure Investments. Istanbul, 8th November 2006. Alessandro Merlo Sanpaolo IMI Group International Public and Infrastructure Finance. Public Private Partnership . PPP schemes continue to develop well throughout Europe and United States

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ppp funds for infrastructure investments

PPP Funds for Infrastructure Investments

Istanbul, 8th November 2006

Alessandro Merlo

Sanpaolo IMI Group

International Public and Infrastructure Finance

slide2

Public Private Partnership

PPP schemes continue to develop well throughout Europe and United States

Successfully PPP schemes in Europe:

France, Germany, Italy, Spain, Portugal, Greece, etc.

Supported by:

  • legislative framework
  • PPP taskforces
  • governments commitment
slide4

PPP in Italy and MENA countries

A parallelism can be drawn between the Italian development of PPP scheme and the experience in MENA countries

  • Lack of modern infrastructures
  • Government Budget restrictions
  • State providing public services (experience vs. efficiency)
  • Lack of institutional investors
  • Lack of capital for local sponsors

Nowadays Italy can be considered one of the most promising market for PPP projects development in Continental Europe

slide5

PPP in Italy a long start-up period

The last three years (2002 - 2005), thanks to legislative innovations, can be considered as the true start up phase with:

  • public entities
  • private companies
  • banks

That gave the necessary experience and defined operating criteria those will permit to speed up the bidding and structuring procedures

slide6

PPP in Italy creating the “legal framework”

Modifications to the legal framework:

  • elimination of limits on the concession period
  • priority right attributed to the promoter

are the factors that have determined a boost of projects under PPP schemes.

In a three years’ period the number of tenders has doubled (from 206 to 418), while the number of concessions granted has increased by almost 4 times (from 47 to 229).

slide7

PPP in Italy

Data related to projects prometed by public authorities

Data related to projects promoted by private companies

Investors come when revenue stream is supported by a clear regulation.

slide9

Role of PPP funds

100

Debt

Equity provided by sponsors

Project Financing provided by banks

Mezzanine or Equity provided by PPP funds

  • Leverage funds
    • PPP funds attract money from long term investors (such as pension funds, banks, foundations). They inject equity or mezzanine finance in PPP projects
slide10

Role of PPP funds

  • Benefits for investors in PPP funds
    • Investing in stable cash-flow businesses, with a moderate risk
  • Help sponsors
    • PPP funds help sponsors to:
      • Structure project financing (making them “bankables”)
      • Face equity needs (both through capital increase and mezzanine financing)
      • Control costs during construction and operational period
  • Benefits for public sector
    • PPP funds stress analysis on economic and financial feasibility of projects in the long term
    • PPP funds are bynature long term investor, they are not interested in construction revenues
slide11

What comes first ?

What comes first: PPP development or PPP funds ?

Lesson took from PPP experience in the UK:

  • the growth has been in parallel.
slide12

The PPP Italia Fund

Geographic Focus

  • Italy

Investment Type

  • Social and Public Buildings, Environment projects, Public Utilities networks

Fund Strategy

Investment Philosophy

Investing in greenfield and brownfield PPP projects

slide13

The PPP Italia Fund

Investment strategy

  • With such an investment policy PPP Italia, raising €120mln, will in invest in projects for about €1,5bln
slide15

Public Investments in PPP funds

  • To attract investors Public Authorities and Donors normally gives subsidies to project sponsors
    • Subsidies are one-off investments
    • Subsidies availability is very restricted
    • Difficult to choose to which projects grant subsidies and in which amount
  • Public Authorities and Donors can invest in PPP funds and being able to accept more risk and less return, compared to Private Institutional Investors, they can:
    • Decrease the cost of equity and mezzanine for infrastructure projects
    • Have a strong leverage effect: up to 1 to 20 (1€ invested in PPP Funds by Public Authorities can attract additional 2€ from institutional investors and as a result participating to projects for 20€)
    • Take profit of project analysis and selection made by a dedicated team (fund managers are remunerated based on the success of their investment)
    • If things goes well Public Authorities and Donors can receives back their investments and participate to extra-performance
slide16

A case study: FIDEME

Project

  • Fideme is a closed-end fund, managed by IXIS CIB, which provides mezzanine finance to renewable energy sector in France

Junior Investor

A share

Ademe

French Public Agency for Renewables

€15mln

Mezzanine Finance

FIDEME

Institutional Investors

(CDC, Banca OPI, Caisses d’Epargne, …)

Senior Investor

B share

€30mln

  • 30 projects
  • 320 MW installed
  • €370mln invested
slide17

FIDEME Cash Flow Cascade

After four years (2002 – 2006)

  • All the funds has been invested
  • No default projects (a portfolio analysis shows an better risk profile compared to initial hypothesis)
  • Potential over-performance (current evaluation): €5mln
  • ADEME will be able to re-invest entirely its commitment, … and even more
  • Payment of priority interest to B shares
  • Buy Back of B shares (at nominal value) – reimbursement of invested capital
  • Buy Back of A shares – reimbursement to Public Agency
  • Payment of extra performance, if any, equally divided between A (50%) and B (50%) shares
slide18

Alessandro Merlo

Sanpaolo IMI Group

International Public and Infrastructure Finance

Edin & Suner Plaza

Meydan Sok. 14/1, Akatlar

Istanbul, Turkey

Phone +90 212 3511731

Fax +90 212 3511733

E-mail a.merlo@sanpaoloimi.com